Finding Text
The County did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 21.027 - COVID 19 – Coronavirus State and Local Fiscal Recovery Fund Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: 22HC.003 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer or broadband infrastructure. In 2023, the County spent $729,306 in program funds for the provision of government services. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the County enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The County may verify this by checking for Page 10 Office of the Washington State Auditor sao.wa.gov exclusion records in the U.S. General Services Administration’s System for Award Management (SAM.gov), obtaining a written certification from the contractor, or adding a clause or condition into the contract that states the contractor is not suspended or debarred. The County must verify this before entering into the contract or purchasing goods and services and must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Our audit found the County did not have effective internal controls to verify the status of six contractors it paid more than $25,000 in federal funds and ensure they were not suspended or debarred from participating in federal programs. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition The County’s process included staff checking the suspension and debarment status of contractors when they first entered them into the County’s system, and then checking again once every three years. Staff did not know that when using federal funds, they should check the status of contractors each time they entered into a new contract or purchased from the contractors. Additionally, County employees were not aware they needed to verify the contractors’ status before entering into contracts, rather than before issuing payment to the contractors. Effect of Condition For six of seven contractors tested, the County did not obtain a written certification, insert a clause into the contract, or search for exclusion records in SAM.gov to verify contractors it paid with federal funds were not suspended or debarred within an allowable timeframe before entering contracts. Specifically, the County checked the status for two contractors after signing the contract and checked the status for four contractors more than a year before signing the contracts. Without adequate internal controls, the County cannot ensure the contractors it paid with federal funds are eligible to participate in federal programs. Any program funds the County used to pay contractors that were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. We subsequently verified the contracts were not suspended or debarred. Therefore, we are not questioning these costs. Page 11 Office of the Washington State Auditor sao.wa.gov Recommendation We recommend the County strengthen internal controls to verify all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them. County’s Response With the assistance of the County Manager’s Office, the Auditor’s Office will review and update the Grant Policy to include an effective internal control for federal suspension and debarment requirements. SJC Grants Administrator will offer a training that all grant/project managers must complete. Auditor’s Remarks We appreciate the steps the County is taking to resolve this issue. We will review the condition during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.